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Obamacare's individual mandate, explained

The individual mandate is the least popular and most controversial part of Obamacare — and it's a policy that's absolutely necessary to making the health reform law work.

What is the individual mandate?

The individual mandate took effect in 2014, and requires the vast majority of Americans to purchase health insurance coverage. It exists to encourage people unlikely to buy a plan — mostly healthy people who think premiums are a waste of money — to do so. Getting those people into Obamacare's marketplaces will help keep premiums low.

Some people do get exemptions from the individual mandate — because they can’t find an affordable plan, for example, or have a religious objection to health coverage. But by and large, most Americans are now required to carry health coverage or pay a penalty. In 2015, the penalty is $395 per person or 2 percent of income, whichever is greater. It will rise to $695 per person, or 2.5 percent of income, in 2016. You can calculate your penalty here.

The individual mandate was originally a conservative idea, pushed in response to President Bill Clinton’s 1994 health-care plan. It was a key part of the coverage plan that Gov. Mitt Romney passed in Massachusetts in 2006. But since it became part of Obamacare, most criticism of the mandate has come from conservatives. Republican attorneys general mounted a lawsuit against the requirement to purchase health coverage, arguing it was unconstitutional.

The Supreme Court ultimately ruled 5-4 that the mandate was constitutional under the federal government’s taxing powers — and the requirement to purchase health insurance still stands today. Now there's another challenge for the Obama administration: making sure that Americans actually comply with this new requirement.

How does the individual mandate work?

Americans are now required to submit proof of health insurance coverage with their tax return — or pay a penalty to the Internal Revenue Service.

If you do not submit proof of coverage, the IRS will automatically take the penalty by pulling it from your tax refund.

If you don't have a tax refund that the federal government can pull the penalty out of, the IRS will ask you to send it the money — just as the agency does with other unpaid taxes. And if you don't do that, the IRS rolls the balance over to your tax bill for the next year. This can go on indefinitely — although whenever you do get a tax refund, the IRS has the power to dip into that to pay for any outstanding individual mandate fines.

One unique thing about the individual mandate: the federal government can't take harsher enforcement efforts. It can't garnish your wages or place a lien on your house, as the federal government sometimes does to collect outstanding taxes. This makes the individual mandate somewhat difficult to enforce, as the Affordable Care Act specifically restricted the steps the IRS could take to recoup the fine.

Who is exempted from the individual mandate?

Federal regulations exempt some groups of people from the individual mandate. Some are people who can't afford health insurance; the idea here is that it's unfair to penalize Americans who want to purchase a plan but don't have the money to do so. Others have ethical objections to the mandate.

Here's a list of all the exempted groups:

  1. Individuals who can't find an insurance plan that costs less than 8 percent of their income
  2. Individuals who can prove to the government that purchasing a plan would prove an "unmanageable financial burden"
  3. Those who object to health insurance on religious grounds
  4. Unauthorized immigrants
  5. Prisoners
  6. American Indian tribe members
  7. Individuals whose income is too low to file a tax return ($10,150 for individuals in 2015)
  8. Individuals with one coverage gap shorter than two months

How you actually get those exemptions varies. Most hardship and religious exemptions are obtained through HealthCare.gov. Unaffordable coverage and some hardship exemptions are claimed through tax returns.

What happens if I lose my health insurance outside of the open enrollment period?

There are special enrollment periods for big life events. After one of the following events happen, Americans are eligible to head to the health-care exchange and shop for new coverage:

  1. Gaining or losing a dependent through marriage, divorce, legal separation, birth of a child, adoption, legal guardianship, or death of a child or spouse
  2. Moving to a new place outside of your insurer's coverage area
  3. Losing health insurance due to factors out of your control, like losing a job or turning 26 and losing your parents' coverage
  4. Changes in employment or income for you, or your dependent, that affect eligibility for Obamacare tax credits
  5. Gaining citizenship or legal resident status
  6. Leaving jail or prison
  7. Gaining official membership to an American Indian tribe

HealthCare.gov provides 60 days to purchase a plan after the qualifying event. After that, shoppers have to wait for the next open enrollment period. Those who go a few weeks without coverage will not face fines; the individual mandate fines do not kick in until you've gone at least three months without insurance.

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